Cash in a flash

Cash in a flash

Sunday 27 July 2003 06.49 EDT
First published on Sunday 27 July 2003 06.49 EDT

Banks use the base rate gap to pull in millions

Banks are making millions whenever there is a reduction in the base rate by staggering the dates on which they reduce their savings and mortgage rates.

When the base rate fell in February, Lloyds TSB cut savings rates on 17 February, but C&G (which is owned by Lloyds) did not reduce its mortgage rates until 1 March, giving a 12-day gap in which the group paid out less interest.

The bank's savings rates were reduced on 15 July, but mortgage rates will not fall till 1 August. Banking experts estimate that Lloyds makes £120,000 for every £1bn of assets it holds if it 'gaps' for two weeks - and an estimated £40bn in assets means that the bank is making almost £5m from its current gapping. Lloyds insists that its mortgage and savings businesses are entirely separate and do not support each other, but refuses to comment further.

The bank is not the only one practising gapping: NatWest and Royal Bank of Scotland cut their savings rates on 17 July and 21 July, respectively, but neither is lowering its mortgage rates till 1 August.

Holidaymakers put in a sterling effort

Britons are not shy when it comes to spending on leisure. Research from American Express suggests that the average summer holiday now costs £552, while the average person spends £540 on holiday shopping.

For a family of four, the average spend is £1,742, with most money going on pre-holiday essentials such as sunglasses, clothes and reading.

Almost 80 per cent of holidaymakers spend up to £50 just in the departure airport shopping lounge, and the average Briton abroad spends £375 in his or her holiday destination, with the biggest spenders in the 35-54 age group.

No escape from homeloan straitjacket

Borrowers should not get their hopes up that repaying loans early will become cheaper this autumn, when the Department of Trade and Industry publishes a White Paper on credit law reform. Borrowers who pay off loans early are currently subject to the Rule of 78, a complicated tool that calculates the cost of early settlement and is always more favourable to the lender. The paper will replace the Rule of 78 with a fairer calculation.

But the Consumers' Association says that lenders will still be allowed to charge one month's interest for early repayment. 'This means that consumers will continue to be penalised for settling loans early,' says Laurence Baxter, senior policy adviser at the CA. The paper will also allow lenders to recoup loan set-up costs by deferring the early settlement date by one month - so, in effect, borrowers will still be paying two months' interest to escape their loans.

Research from Egg indicates that two-thirds of consumers are put off repaying loans early, or moving their debt to a cheaper lender, by these charges. 'Redemption penalties act as a financial straitjacket,' says Mark Nancarrow of Egg. 'The DTI has missed an opportunity to abolish these heinous fees and create a level playing field for all UK borrowers to shop around.'

Why you should take it with you

If you're going on holiday soon, make room in your case for extra cash. According to money transfer specialist Western Union more than a quarter of all holidaymakers underestimate how much to take with them and run out of funds before their holiday ends. Just under 10 per cent lose money when away and 3 per cent have had cash stolen.

Western Union has a new service that allows people to send money using a debit or credit card over the phone - so if your cards are lost or stolen you can get a friend or relative to call 0800 833833 and send you cash immediately without having to visit a Western Union agent. The number is available 24 hours a day.

The charge in the machine

The number of ATMs that charge for cash withdrawals has increased by 11,000 over the past three years, according to Nationwide. These machines are 'convenience' types, usually in shops and petrol stations, and not branded with any bank or building society name. At present, people using convenience ATMs are not warned that a charge will be made until the withdrawal is almost complete and Nationwide is pushing for the information to be made more apparent through stickers on the machines. 'Consumers prefer not to pay for withdrawing their own money,' says Nationwide's Stuart Bernau. 'But if they must pay, they would like to have a clear indication in advance.'

A £10 gateway to the net

If you want internet access that is not metered and does not tie you to a minimum contract, MyInternetPass may be the answer. This new service sells cards that provide internet access for a flat fee of £10. Customers can use them either for unlimited access for 30 days or for 2,000 metered minutes over three months.

Paying in advance means you cannot run up enormous phone bills for unlimited access and neither do you have to commit to any period of use, plus you can switch between the metered and unmetered tariffs at any time. At £10 a month, this is cheaper than any other standard unmetered service, beyond free or discounted introductory offers - BT Openworld and AOL's standard monthly charge is £15.99, Freeserve and Tiscali both charge £14.99, Virgin.net charges £13.49. and Evesham £11.99 a month.

You can get unmetered access from NTL for £10 a month, but have to switch your telephone supply to the company. MyInternetPass cards are available from newsagents and PC retailers or from the website at www.myinternetpass.com

Don't get bored on the beach

Feel strong enough to swot up on finance while on holiday? Slip these into your suitcase: The Guardian and Observer guides to Pensions, sponsored by Millfield Partnership, (0800 783 7741), Inheritance Tax, sponsored by Charcol Holden Meehan (0800 195 6122) and Retirement Options, for people near retirement, from The Falcon Group (0870 7740 567).